Anticipated Deceleration in Growth for ‘Unsecured Retail Loans’ in FY24

Recent regulatory measures implemented by the Reserve Bank of India (RBI) are set to reshape the landscape of unsecured retail loans in Mumbai. Crisil Ratings predicts a notable deceleration in the growth of these loans, contrasting sharply with the robust 45% expansion observed last year.

Impact on Growth

• According to Crisil Ratings, the growth of unsecured retail loans is likely to slow down to 20-30%, reflecting a strategic shift by non-banking financial companies (NBFCs) in response to the regulatory changes.
• This contrasts with the steady growth anticipated in secured asset classes.

Regulatory Measures and Capital Requirements

• The recent RBI directive instructing banks and NBFCs to allocate more capital for consumer loans is expected to have significant repercussions. Compliance with these guidelines is estimated to cost a substantial ₹84,000 crore in capital.
• As a result, personal loans and credit cards are anticipated to become more expensive, potentially leading to a curtailment of growth in these segments.

Expert Insights

• Gurpreet Chhatwal, Managing Director at Crisil Ratings, highlights that the regulatory measures specifically target unsecured retail loans, leaving secured asset classes relatively unaffected.
• This insight underscores the expectation of a more stable growth trajectory in secured lending.

Diversification Strategies

• To navigate the evolving landscape, NBFCs are likely to prioritize product diversification. Krishnan Sitaraman, Chief Ratings Officer at Crisil Ratings, emphasizes that NBFCs, with their core competency in reaching challenging customer segments, will pursue diversification through a blend of organic, inorganic, and partnership approaches.

Market Dynamics

• Crisil Ratings notes that while unsecured loans currently contribute 12-14% to the NBFC sector’s assets, the majority stems from secured assets.
• The rising costs of compliance may propel NBFCs to explore a broader product range, adapting to the changing regulatory environment.

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